Explain the demerits of the output approach in measuring national income. (10 marks)

Demerits of the output approach in measuring national income

1. It excludes crucial services that contribute to national income but not paid for like government services, and self-employment. It is difficult to make a decision about the goods and services to include in this measure.
2. Problem of subsistence sector/output. It is difficult to value subsistence output.
3. Some activities considered illegal generate a lot of income but are not included in the measure of national income. These activities inject a lot of money into the economy.
4. Difficulty in valuing stock at the end of the accounting year as this differs with their value at production.
5. Difficulty in determining the increase in value as a result of increasing volumes of output. Final price is usually affected by market forces.
6. Difficulty in deciding on the value to use when making records. The values keep changing in line with market forces.
7. It is difficult to determine the value of depreciation hence failure to record accurately the value of capital goods.
8. Fluctuations in prices which may cause output to appreciate.

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